The future of mobile wallets

Mobile wallet technology is becoming a staple in the payments arsenal of many community banks, both large and small. Many of these financial institutions are considering the next steps to make this payment product more secure, more useful and more appealing to a wider swath of customers.

By Karen Epper Hoffman


Like so many products and services, mobile wallets have crossed the chasm from being an optional offering that might appeal to the most tech-savvy early adopters a few years ago to a payment product that most customers expect their bank to make available.

Driven by consumer demand and the desire to make relationships stickier and build customer loyalty, mobile wallet technology has become increasingly popular among community banks within the past four years. Larger community institutions tend to offer all three of the major mobile wallets—Apple Pay, Samsung Pay and Google Pay—to appeal to the broadest swath of smartphone-toting customers. And, after building a significant customer base, several of these early leaders are eager to take their mobile payment offerings to the next level.

Avidia Bank rolled out Apple Pay roughly three years ago, according to Todd H. Wood, a digital banking manager for the $1.5 billion-asset community bank in Hudson, Mass. “At the time, everyone was putting up signs about mobile wallet, and we looked at ourselves and said, ‘There’s no way to track the usage here,’” Wood says. Since then, the bank has added support for the other two major mobile wallets and the offering has “gained some traction,” he adds.

Bank of New Hampshire in Laconia, N.H., followed a similar path, launching support initially for Apple Pay in November 2015 when it first became available through the $1.7 billion asset-community bank’s core vendor. Bank of New Hampshire added support for Google Pay—then called Android Pay—and Samsung Pay in July 2016, since the payments technology was just as secure as traditional plastic cards, if not more so, according to Paul J. Falvey, the bank’s president and CEO. “There can be multiple cards stored in a mobile wallet,” he says, “but mobile wallets such as Apple Pay do not store any card number data on the device.”

The big three mobile wallets have been available to customers of $850 million-asset JD Bank in Jennings, La., for three years, according to Jeremy Guidry, its client experience director. “What started the conversation was the amount of customer calls we received online, at branches, at call centers,” he says. “They asked for this.”

Engaging younger customers in particular has been a big driver, especially since JD Bank has a branch in a major college town—Lake Charles, La.—in its region. “As our [existing] customer base gets older, we have to think more about attracting younger customers,” Guidry adds. JD Bank’s mobile wallet does seem to have succeeded in attracting customers of all kinds. The bank has seen the percentage of its active card base enrolled in mobile wallet increase from 7% in the first year, to 15% in the second and then to 25% in the third year. Apple Pay has seen the greatest uptick, Guidry says.

“Millennials are demanding digital payments, moving beyond even the mobile wallet,” says Pablo Cohan, the senior vice president for digital payments and labs for Purchase, N.Y.-based Mastercard, pointing out that this technology makes it easier and more secure to manage subscription payments for application-based services like Uber, Lyft and Spotify. In addition, early adopter customers of mobile wallet tend to be middle- to higher-tier credit consumers and business customers, people who community banks are eager to win over, Cohan adds.

Similarly, Bank of New Hampshire has experienced an approximately 63% increase in mobile wallet transactions from 2017 to 2018 and a nearly 152% increase in the amount spent, according to Falvey. He projects that in 2019, the community bank will see a 104% increase in transactions and 64% increase in spending. “It provides a faster, more convenient payment alternative for our customers, in person or within app, at merchants that accept mobile payments,” Falvey says.

“It provides a faster, more convenient payment alternative for our customers, in person or within app, at merchants that accept mobile payments.”

—Paul Falvey, Bank of New Hampshire

Guidry sees the biggest challenge to the greater usage of mobile wallets is merchant acceptance, which has moved more slowly than those at JD Bank initially expected. But as more merchants are seeing competitors accepting mobile-based payments and the efficiency it can offer them, the landscape here is expanding. “Mobile wallet acceptance by businesses, along with the deployment of the technology by community banks, is becoming an expectation of our customers,” Falvey says.

Retail support

Lately, the growing number of popular merchants that support mobile payments has actually helped boost wallet enrollment and usage for many banks. For Avidia Bank, the support of major local merchant chains, especially ones where shoppers are regulars and usually in a hurry, such as Dunkin’ Donuts and Starbucks, has been the biggest driver for mobile wallet use, Wood says. Eventually, being able to add digital couponing and other appealing add-ons to the mobile wallet would likely get even more customers using it, he adds.

Early on, some bankers were more than a bit wary of the inherent security of mobile wallet applications. After all, they supposed, is it really safe to keep several financial card numbers and other sensitive relevant payment data stored on a hackable application on a mobile device, which could be lost or stolen? But as knowledge and popularity have grown, community bankers have come to understand that, if properly executed, mobile wallet payments are typically even more secure for both customers and banks than traditional cards. Wood points out: “As we are seeing more breaches, just not having to physically take your card out to use it is often a good thing.”

“The mobile wallet concept can be scary for some, but once we explain how it works, most are willing to give it a try,” Falvey says. “Financial institution losses associated with mobile wallets have been minimal. We have solid processes and procedures in place to mitigate risks.”

For Falvey, there are a number of mobile wallet security measures to keep in mind. With tokenization, during the purchase, a one-time-use card number is generated behind the scenes for the transaction, so the merchant never receives the cardholder’s card information. With biometric authentication, the mobile device owner’s fingerprint or facial features are used to validate their identity and complete the transaction. And a basic PIN associated with the debit card is required for larger purchases.

The benefits and barriers of mobile wallets


Customer benefits

  • Mobile wallet payments process faster than traditional transactions.
  • They eliminate the need to carry a wallet or purse when shopping.
  • Customers with wearable devices like an Apple Watch can make purchases with their device.

Community bank benefits

  • The risk of financial loss associated with merchant compromises is decreased due to tokenization because the merchant doesn’t receive card information.
  • If banks can make it more convenient for customers to use their debit card, greater usage may equate to better customer satisfaction and more interchange income.
  • The cost and effort associated with offering mobile wallet technology are relatively small.

Community bank barriers

  • A mobile wallet transaction requires the use of biometrics—fingerprint or facial recognition—for all purchases. For larger purchases, a PIN is required, so a lost device does not result in fraud.
  • The debit card information is not stored on the mobile device. If the device is lost, the card information cannot be recovered.
  • Not all smartphones support mobile payments.
  • Merchant acceptance has been increasing slowly. Apple recently announced that shortly, 65% of U.S. retailers will accept Apple Pay.

Karen Epper Hoffman is a writer in Washington state.

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